To add to the debate regarding workers demanding above inflationary increases in the Business Day with a rebuttle by the deputy governor of the South African Reserve Bank (SARB) – this short response by Dick Forslund and Mazibuko Jara was not published. At the end of their response to SARB’s Dr. Guma, Mazibuko and Forslund from Amandla! talk about “the fallacy of ‘export-led growth’”. This short article on “Wage-led growth” by Indian economist Jayati Ghosh addresses precisely this issue. Read the original articles here>>
Unpublished Response: No SARB, the Problem is Not Too High Wages (read below)
At the end of his 29 September reply to our 22 September article, SARB Senior Deputy Governor Dr XP Guma states that inflation targeting isn’t labour market policy. It escapes Dr Guma’s attention that he in half of his letter insists that wage bargaining unions must target inflation.
Dr. Guma cannot refute though, that real wage increases below productivity gains ultimately increase inequality, as has been the case over the last 15 years. This in a situation when we have millions of workers paid starvation wages, putting them and their families in extreme economic vulnerability.
The increased productivity of South African workers is acknowledged by the SARB’s own regular economic reviews: “The year-on-year rate of increase in labour productivity accelerated from 3.1 per cent in the fourth quarter of 2009 to 5.0 per cent in the first quarter of 2010” (Quarterly Bulletin, September 2010). Or we can take Dr Guma’s rounded employment figures for the third quarters of 2005 (13 million) and 2010 (12.7 million), used by him without acknowledging the global crisis resulting in more than 1.2 million job losses in SA. Brought together in a simplified way with Stats SA real GDP quarterly statistics, Dr Guma’s figures show an average yearly increase in productivity of 3.8%. Roughly speaking then, for labour to keep its share of value added constant during the period September 2005 to September 2010, workers should each year demand a wage increase of: inflation + 3.8%. This would merely stop inequality from growing.
This said, it is of course impossible to say what the situation would be, had workers’ share of value added not dropped 2000-2009 with 3 percentage points. Employment depends on overall economic policies, not least trade policy. Also: SA capitalists are free to expatriate profits. As a result, the economy is reliant on wooing foreign capital, which is the basic reason for locking the economy into inflation targeting.
There are however things that can be said with certainty:
1) Dr Guma’s text book link between increasing profits and increasing real investments is broken. In this world, extra profits of more than R410bn in current prices since 2001 did not stop the job-shedding (“R210bn”, was a proof error in our first article). The money went to minority conspicuous consumption, off-shore investment, and fed speculative finance.
2) These R410bn could instead have boosted sound majority consumer demand. This would have been good for employment.
3) People are invited to borrow back some of the wages forfeited to Capital at an interest. According to Cosatu, 9 out of 18 million credit card holders have defaulted or lag more than three months behind with repayments.
4) SARB is using a dangerous argument that goes down a slippery slope all the way down to the exploitation workers suffer at the textile factories of Newcastle.
Despite reaching 30-year lows, South African interests have been generally high. Induced by higher interest rates than in the developed world, short-term capital inflows are now pumping up the Rand, highlighting the fallacy of “export led growth path” and neo-liberal deregulation.
All this, taken together, shout out one message: the time is more than ripe for a major overhaul of economic policy.
Dick Forslund is an economist and researcher at Alternative Information and Development Centre (AIDC). Mazibuko Jara is a member of the Amandla! editorial collective.